The Impact of Trade Openness on Economic Growth: The Case of Ghana and Nigeria

Abstract

This study aims to determine the impacts of trade openness on economic growth in Ghana and Nigeria using panel data from 1998 to 2017. This study has trade openness, inflation, real exchange, and investment as independent variables and economic growth as a dependent variable. This study used pooled ordinary least squares (OLS), fixed effects, random effects, and a Hausman test with panel data to arrive at the results. Hausman’s test was performed to indicate which model is suitable for the study. The result suggests that the random effect model is appropriate for the study. The results show that trade openness and real exchange rate positively and significantly impact economic growth using the random effect. In contrast, inflation and investment have an insignificant impact on economic growth using Random effect estimated models. The study indicated that there is no heteroskedasticity and also no autocorrelation results in the data. Therefore, it is recommended that governments of these countries implement measures and policies to manage the real exchange rate and trade effects to protect economic growth. About inflation, governments of these countries can put in measures to curb and control inflation since a rise in inflation has negative effects on economic growth.